Inventory vs. Price Cuts
The early months of 2025 have presented a confusing housing market landscape that has left both buyers and mortgage professionals puzzled. With seemingly contradictory data points emerging about inventory levels, pending sales, and price adjustments, navigating today's real estate market requires careful analysis and strategic thinking, particularly for VA loan users and military homebuyers.
Record Low Pending Home Sales Despite Rising Inventory
In a perplexing market development, pending home sales have dropped to their lowest level since tracking began in 2001, despite consistent increases in available housing inventory.
The Numbers Behind the Contradiction
According to the National Association of Realtors, pending sales dropped 4.6% from December 2024 to January 2025, reaching the lowest level in the 24-year history of tracking this metric. This dramatic decrease occurred despite inventory levels continuing their upward trend for the 16th consecutive month.
Current housing inventory stands at approximately 639,000 homes nationally, up from 632,000 just weeks earlier. This represents a significant increase compared to the inventory shortage experienced throughout 2023 and early 2024.
What's Causing the Disconnect?
Several factors may explain why increased inventory isn't translating to more pending sales:
Political and Economic Uncertainty: The transition to a new presidential administration has created uncertainty, particularly for government workers and contractors concerned about potential job security. This has caused many potential buyers to temporarily pause their home search.
Weather Factors: While some analysts point to unusually cold weather in parts of the country as contributing to slower sales, this explanation likely accounts for only a small portion of the decline.
Continued High Mortgage Rates: Despite recent modest decreases, mortgage rates remain elevated compared to historical norms, constraining affordability for many potential buyers.
For veterans using VA loans, this market presents both challenges and opportunities. While competition may be less fierce than in recent years, qualifying for sufficient loan amounts remains difficult in the current interest rate environment.
Price Reductions: Reality vs. Headlines
One of the most misunderstood aspects of the current market concerns price reductions. Headlines touting "slashed prices" often misrepresent the actual market conditions.
Understanding the Real Numbers
Currently, about 17.7% of homes on the market have seen price reductions. While this represents an increase, it's worth noting that during normal market conditions, 30-35% of listings typically experience price adjustments. Today's "price slashing" is actually below historical norms.
The data shows that 45 of the nation's 50 largest metros saw an increase in homes with price cuts compared to February 2024. However, this should be viewed in context of the extremely competitive seller's market of recent years.
What This Means for Military Buyers
For VA loan users, these price adjustments create negotiation opportunities that were virtually non-existent in the highly competitive market of 2021-2023. Veteran buyers are now finding:
More willingness from sellers to offer concessions
Increased acceptance of VA loans in competitive markets
More time to conduct thorough home inspections
Opportunities for interest rate buydowns paid by sellers
One VA loan specialist reported a recent deal with $34,000 in seller concessions—a scenario that would have been unimaginable just one year ago. This represents a significant advantage for veterans using their hard-earned VA loan benefits.
Days on Market Remain Reasonable
Despite the slowdown in pending sales, homes are still selling at a reasonable pace. The average home is selling 11 days slower than the previous year, but this is far from a stagnant market. Interestingly, four regions in the country are actually seeing homes sell faster than pre-pandemic levels, indicating strong continued demand in certain areas.
For military families who often need to relocate on specific timelines, understanding these regional variations is crucial for planning purposes.
Insurance Concerns Reshaping Housing Decisions
Beyond traditional market factors, insurance costs are increasingly influencing homebuying decisions in ways that significantly impact the market.
The Growing Impact of Insurance on Housing Choices
According to recent data, 57% of homeowners would strongly consider moving to avoid high insurance premiums and property taxes. This includes 43% planning to move within five years and another 14% considering immediate relocation to avoid financial strain.
For VA loan users, who often purchase in coastal areas near military installations, insurance considerations have become a critical part of the homebuying process.
Real-World Insurance Challenges
The insurance situation has become so severe that deals are falling through based solely on insurance costs. One mortgage professional shared an example of a $750,000 purchase in Florida where the insurance quote came in at $833 per month—over $10,000 annually—causing the buyer to cancel the transaction despite having already negotiated $20,000 in seller concessions.
Veterans using their VA loan benefits should be particularly vigilant about insurance costs, as premiums now represent a significant portion of the overall housing payment and can affect loan qualification. VA loan specialists recommend:
Getting insurance quotes before making offers
Including contingencies for insurance costs
Considering insurance costs when determining affordable price points
Looking at inland properties when considering coastal states
Insurance and DTI Ratios
For mortgage qualification purposes, insurance premiums are included in the debt-to-income (DTI) ratio calculations. The dramatic increases in insurance costs are effectively reducing purchasing power for all buyers, including veterans using VA loans.
Even if a buyer can technically afford a higher insurance payment, lenders must include these costs in their qualification calculations, potentially forcing buyers to look at lower-priced homes or different neighborhoods to qualify for financing.
Foreclosure Rates Remain Low Despite Economic Pressures
In a positive sign for the overall market health, foreclosure rates remain remarkably low at just 0.2%, with only 3.1% of mortgages being 30 days or more past due.
Equity Providing a Safety Net
High levels of home equity continue to provide homeowners with options when facing financial challenges. Rather than entering foreclosure, homeowners with equity can:
Refinance to consolidate debt (even if at higher rates than their original mortgage)
Sell their property and capture equity
Leverage equity for home improvements that create additional income (like ADU construction)
Case Study: Using Equity to Create Income
One mortgage professional shared a client example of using $200,000 in equity to:
Pay off $130,000 in high-interest personal debt
Finance a $70,000 garage conversion into a rental unit
Generate $2,200 monthly in rental income
While the refinance increased their mortgage payment from $3,600 to approximately $5,600, the rental income offsets a significant portion of this increase while eliminating their previous debt payments.
For veterans who purchased homes using their VA benefits in recent years, the equity gained provides both financial security and wealth-building opportunities that can help offset higher living costs.
Strategic Advice for Military Homebuyers in 2025
Given the complex and sometimes contradictory market conditions of early 2025, veterans and military personnel considering a home purchase should approach the market strategically.
For VA Loan Buyers Entering the Market
Take advantage of reduced competition: With fewer buyers in the market, VA offers face less competition than in previous years.
Negotiate aggressively: Ask for seller concessions, rate buydowns, and closing cost assistance—sellers are increasingly willing to work with buyers.
Consider multiple properties: With more inventory available, don't focus exclusively on one property. Present offers on multiple homes to increase your chances of success.
Factor insurance costs into your budget early: Get insurance quotes before making offers, as this expense can significantly impact affordability.
Look beyond traditional markets: Consider areas slightly outside your ideal location to find better values and potentially lower insurance costs.
For Current Military Homeowners
Assess your equity position: Most homeowners have substantial equity that can be leveraged if needed for debt consolidation or creating additional income streams.
Consider improvement projects that generate income: Converting spaces to rental units (where permitted) can help offset higher mortgage rates if refinancing is necessary.
Shop insurance policies regularly: Rates vary significantly between companies, and new options continue to enter markets despite some major carriers exiting.
Maintain good credit: With tighter lending standards, maintaining excellent credit is crucial for accessing the best rates when refinancing or purchasing.
Conclusion: A Market of Contradictions and Opportunities
The 2025 housing market presents a series of contradictions: increasing inventory but decreasing pending sales; headlines about "slashed prices" when reductions remain below historical norms; and rising equity even as affordability challenges persist.
For military members and veterans, these contradictions create both challenges and opportunities. The reduced competition and increasing seller concessions make this potentially an excellent time to use VA loan benefits, despite higher interest rates. Meanwhile, those who already own homes have significant equity that can provide financial flexibility.
Understanding the nuances of this market—beyond the sometimes alarming headlines—allows for strategic decision-making that can significantly benefit those who have served our country as they make important housing decisions.
Listen to the Mortgage Heroes Podcast on your favorite platform.
